SAN FRANCISCO (CN) — A federal judge has given an interim boost to a $6 billion deal between the federal government and a class of student borrowers to forgive loan debt.
Seven plaintiffs filed a class action lawsuit against then-Education Secretary Betsy DeVos in 2019, claiming the Education Department’s refusal to process borrower defense claims left more than 160,000 students with damaged credit and permanently harmed their chances of accumulating wealth.
U.S. Senior District Judge William Alsup on Thursday gave preliminary bench approval to the proposed settlement after more than a year of negotiations. But the federal government and the class of borrowers seeking debt relief still have one last hearing before the deal is fully approved.
“This settlement goes beyond arbitration and simply cancels the loan,” Alsup said. “I believe this is a grand slam for the band members because they don’t even have to go through litigation. They get a full nullification.”
However, he has not decided whether the settlement is “fair and reasonable” for the federal government. Alsup had rejected a 2020 settlement proposal and ordered the Department of Education to wipe out accrued interest while borrowers’ defense claims were pending. On Thursday, he asked how the proposed new settlement clarified the issues and who would retain possession of the receipts.
“Six billion dollars will be forgiven, and students won’t have to pay it,” he said. “But someone is holding this paper. It’s either the schools, or certain banks, or the feds. I need to know who’s going to be out of pocket, and the people who believe they’ll be paid…will be- did they get paid?”
Justice Department attorney R. Charles Merritt told Alsup that the federal government was responsible for forgiving and repaying the debt relief.
He and the plaintiffs’ attorney explained that the proposed settlement provides automatic relief — federal loan releases, refunds of amounts paid to the department, and credit repair — for about 75% of the class. The remaining 25% with loans at other schools will receive decisions based on how long to wait for aid.
The relief applies to borrowers who submitted a borrower defense request before June 22. If the Ministry of Education does not render a decision within the required time, a person automatically receives full relief. The ministry agrees to give some relief to borrowers who apply before the settlement receives final approval.
Alsup allowed several institutions to file objections to the settlement, saying their input would be valuable. This decision was welcomed by the parties, who argued that the opposition was “premature” since it came before Alsup had given its preliminary approval.
John Moran, representing American National University, told Alsup they were concerned the settlement would override any rights schools must demand to have a say in proceedings. Jesse Panuccio, representing Everglades College, agreed, saying: “They’re taking all of our rights. We have to protect ourselves.
Alsup rejected this position.
“You’re the luckiest guy in the room. You get all that money and you don’t have to pay it back,” he said. gives you the opportunity to give your two cents before you go down this path. I don’t see you having a lot of trouble.
Alsup has given other schools three weeks to apply to intervene, but they will not have discovery rights.
“I want to be clear, I’m not saying any of you don’t have a real estate interest at stake,” he told the schools’ attorneys. “The main reason I’m inclined to let you in to oppose is to keep the system honest, because these two have come to an agreement and they both want to move on.”
In the six months before President Donald Trump took office in 2017, the Department of Education canceled debt for about 28,000 students who had filed Borrower Defense Claims. Theresa Sweet, lead plaintiff in the class action, says in a 62-page complaint that a “pause” in debt relief in January 2017 under the Trump administration has become a “policy of inaction and obfuscation. intended to prevent defrauded students from obtaining a legal debt. forgiveness.
The plaintiffs say DeVos left more than 160,000 students who relied on the Obama administration’s rule giving for-profit college students a way to have their loan debts forgiven “in limbo.” This rule was used to start cracking down on for-profit schools accused of misleading students about job prospects, such as ITT Technical Institute and DeVry University.
A final approval hearing for the settlement is scheduled to take place before Nov. 3, Alsup said.
Plaintiffs are represented by attorneys at the Predatory Student Loans Project. President and director Eileen Connor said the preliminary approval is another step to “give certainty” to borrower claims.
“When our clients brought this case in 2019, it was based on the fact that many of them had already been waiting for years without a response, and the ailment only got worse over time,” said said Connor.
A Justice Department spokesperson declined to comment.
In 2021, Alsup cleared DeVos’ filing but was reprimanded by the Ninth Circuit last February. Alsup found evidence of bad faith in the Department of Education’s reasons for an 18-month pause in processing debt relief applications under a 2020 settlement. But the Ninth Circuit didn’t. disagreed and concluded that Alsup incorrectly concluded that DeVos possessed necessary and unique information relevant to the trial.
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